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A few weeks ago, we wrote about the enforceability of arbitration clauses in various contexts. In that discussion, we mentioned an ongoing class action in Ontario called Uber Technologies v. Heller. At the time, the case was awaiting a decision from the Supreme Court of Canada with respect to the enforceability of an arbitration clause Uber had included in contracts with its drivers in Canada. Just last week, the SCC released its decision, setting a new precedent with respect to arbitration clauses and how they will be treated in courts across the country.

Background of Uber Technologies v. Heller

The plaintiffs in the class action, including the representative plaintiff, Heller, are attempting to have themselves declared as employees in order to enforce statutory protections such as vacation leave and sick pay. Currently, drivers for Uber and Uber Eats are classified as independent contractors. When the class action began, Uber objected on the basis of the arbitration clause contained in driver contracts which states that any disputes arising out of the contracts must be heard by an independent arbitrator located in the Netherlands.

The plaintiffs responded to Uber’s application to have the case dismissed by claiming the clause was unconscionable, as it required drivers to pay $14,500 to begin the arbitration process, the equivalent of approximately a years’ earnings for many drivers. These costs only covered the arbitration process itself; travel and accommodations to attend in the Netherlands would have to be paid in addition.

Lower Court Decisions

In the original Superior Court decision on this issue, the court held that the clause meant that any dispute arising from the contract was to be heard by the designated arbitrator. This included a dispute over the enforceability of the clause itself. The plaintiffs appealed from the decision.

From there, the Ontario Court of Appeal sided with the drivers, finding that the clause prevented the drivers from exercising their statutory right to bring a complaint before the Ministry of Labour. As this was viewed as Uber attempting to contract out of a statutory right of the drivers, the clause was deemed unenforceable, and Uber then won the right to bring the matter before the Supreme Court of Canada.

Unconscionability is a Valid Reason to Strike an Arbitration Clause

Last week, the SCC released its decision on the matter, finding that the clause in question placed an inordinate burden on the plaintiffs and all drivers who had signed a similar contract. Generally, if both parties agree to arbitration in a contract, the matter is required to proceed that way. However, the Court in this case found the cost and other burdens associated with bringing the matter before the arbitrator in the Netherlands was prohibitive.

The Court conducted an analysis of the unconscionability of the clause, first looking to see whether there was an imbalance of power between the parties. In this case, drivers were asked to accept changes to their contracts via telephone, sometimes mid-delivery. Drivers were unlikely to fully understand the implications of each aspect of the contracts, and in some cases worried that failure to accept the terms would prevent them from being paid for work they were in the process of completing. This satisfied the imbalance of power requirement.

Next, the Court looked at whether the clause resulted in an unfair bargain. Again, in this case, the terms regarding dispute resolution were advantageous only to Uber, as the cost and burden of bringing a matter to arbitration in accordance with the contract were highly prohibitive for drivers. In reality, most drivers with a complaint would not be in a position to exercise the right to arbitration.

As a result, the SCC deemed the clause to be invalid, paving the way for the next step in the class action, which is certification. The drivers have a long way to go, but they succeeded in clearing a major hurdle with this decision, which will also have implications for employees and other contracting parties in Canada going forward. Those drafting agreements of any kind that include terms regarding dispute resolution would be advised to pay close attention to this decision and ensure any terms could not be similarly discarded for being unconscionable.

If you are involved in litigation resulting from a contract dispute, the exceptionally skilled corporate litigation lawyers at Milosevic Fiske LLP in Toronto can help. Over the years, our team of lawyers has successfully fought for our clients’ rights and our impressive track record speaks for itself. Please contact us by calling 416-916-1387 or connect online for a consultation.